The Gold Vault of the FED of New York

The gold bullion in the Federal Reserve Bank of New York's vault is part of the monetary reserves of 36 foreign governments, central banks, and official international organizations around the world. It is stored in 122 separate compartments in the main and auxiliary vaults.It is largely a relic of an era when the gold standard and gold exchange standard were used to establish the relative values of national currencies, and gold itself was used to meet international payments.

The gold stored at the Federal Reserve Bank of New York is secured in a most unusual vault. It rests on the bedrock of Manhattan Island which is very adequate to support the weight of the vault, its door and the gold inside. It is located 80 feet below street level and 50 feet below sea level.

In mid- 2005, the Federal Reserve Bank's vault contained roughly 266 million troy ounces of gold representing 25 to 30 percent of the world's official monetary gold reserves. At the time, the vault gold's was $9.5 billion at the official U.S. Government price of $42.2222 per troy ounce, or about $90 billion at the market price of $400 an ounce. At the current official U.S. Government price, one of the vault's gold bars (approximately 27.4 pounds) is valued at about $17,000. At a $400 market price, the same bar is worth about $160,000.

The governments and official international organizations that store their gold in this place have total confidence in its safety, find very convenient all the services that the Bank offers to them and think that its location is unequalled for being in the center of one of the world’s leading financial capitals.

* Confidence: It results from the Bank's being part of the Federal Reserve System (the nation's central bank and an independent governmental entity). The political stability and economic strength of the United States, as well as the physical security provided by the Bank's vault, also are important factors.

* Convenience: It comes from the fact that the Federal Reserve Bank of New York, in addition to handling foreign financial transactions for the U.S. Department of the Treasury and the Federal Reserve System, executes many other financial transactions in the United States for foreign central banks.

* Location: The gold deposited in the trade and financial capital of the world's largest economy enables countries to engage in transactions of all sizes easily, quickly, and inexpensively.

History

The construction of the building was completed in 1923 and since then it has maintained its continuous operations. Foreign-owned gold valued at $26 million (at the official price at that time of $20.67 a troy ounce) was on deposit with the Federal Reserve Bank of New York when the main vault was opened in September 1924. Holdings rose to about $458 million by the end of 1931, then fell sharply during the Great Depression. The economic problems of the United States, a slump in world trade, the lack of confidence in the international monetary system, and a desire to provide a boost to their troubled economies prompted many nations to recall their gold. By 1935, foreign gold deposits had fallen to about $9 million, even though the official price of gold had been raised to $35 a troy ounce by the Gold Reserve Act of 1934.

The threat of war in Europe reversed the trend of Depression-era withdrawals and brought a virtual flood of gold to the New York Fed for safekeeping. More than $1 billion poured in between 1936 and 1939, when Germany invaded Poland. By the end of the war in 1945, foreign gold reserves stored at the Federal Reserve Bank had risen to more than $4 billion.

As nations with trade surpluses with the United States accumulated more dollars than they needed, they often exchanged their dollars for gold. The gold coffers of these nations in the New York Fed's basement bulged. From 1947 to 1971, the year the United States suspended convertibility of dollars into gold for foreign governments, about $10 billion more was deposited in the vault, bringing the total value of gold holdings stored at the New York Fed to $14 billion at the official price of $42.2222. Since 1972, there has been a gradual, but steady, net withdrawal of gold from the vault.

Gold Vault Value

The value of deposits in the vault has varied over the years because of changes in the official, as well as the market, price of gold. Today, all gold transactions occur at the market price of gold, but prior to 1971 gold transactions between nations were made at an official fixed price. The official U.S. Government price of gold has changed only four times during the past 200 years. Since the passage of the Gold Reserve Act of 1934, which raised the official price of gold to $35 a troy ounce, the price has been raised twice: to $38 in 1972, and in 1973, to its current price of $42.2222 an ounce.

Because of the large disparity between the official price and the market price of gold, the official price has become irrelevant from a transactions perspective. Today, no nation is willing to sell gold at the official price, which is used by governments only for bookkeeping and reporting purposes.

Nowadays, the FED of New York stored $150 billion dollars and only the 2% of this value belongs to the U.S.

Gold Storing

The Bank stores gold in the form of bars that resemble construction bricks and stacks them on wooden pallets like those used in warehouses. To reach the vault, the bullion-laden pallets must be loaded into one of the Bank's elevators and sent down five floors below street level to the vault floor. The elevator's movements are controlled by an operator who is in a distant room and communicates by intercom with the armed guards accompanying the shipment.

Once inside the vault, the gold bars become the responsibility of a control group consisting of representatives of three Bank divisions: Auditing, Vault Services, and Custody. A member of each division must be present whenever gold is moved or whenever anyone enters the vault.

All bars brought into the vault are inspected and weighted. These steps are critical, because the weight and purity of a bar determine its value and acceptability in international transactions. A modern electronic balance scale weights each bar to the nearest 1/1000 of a troy ounce. The vault control group verifies the weight, serial number, and purity measure stamped on each bar against an accompanying manifest.

If everything is in order, the gold is either moved to one or more of the vault's 122 compartments assigned to depositing countries and official international organizations or placed on shelves in one of the "library" compartments shared by several countries. The bars are stacked one at a time in an overlapping pattern similar to that used to stabilize a brick wall. Each compartment is secured by a padlock, two combinations locks, and an auditor's seal.

Although working with gold worth billions of dollars is a fascinating job, moving gold is arduous work. Hydraulic lifts and conveyor belts partially relieve the physical strain, but lifting, swinging, and positioning 27-pound bars again and again is a laborious task. Teams of "gold stackers" work in shifts that allow them sufficient rest periods. The job also has its hazards. To protect their feet from dropped bars, the stackers wear strong, yet lightweight, magnesium shoe covers.

The Federal Reserve Bank does not charge foreign countries for holding gold, but it does levy a handling fee when gold enters, is moved within, or is shipped out of the vault. Compartments are identified by a number, rather than by the countries that own the gold within them, in order to keep each country's gold holdings private. Only a few Bank employees know the identity of the gold owners.

Gold Worth

It is estimated that the gold in the vault represents a significant portion of all the monetary gold that has ever been mined. Most of the gold in existence today was mined during the twentieth century, much of it since the end of World War II. The World Gold Council reported that world gold reserves totaled about 1.0 billion troy ounces in mid-2005. The United States owns approximately 26 percent of the monetary gold.

The bullion in the New York Fed's vault belonging to the U.S. Government represents a very small fraction of the U.S. gold reserves. A majority of these reserves are held in depositories of the Treasury Department at Fort Knox, Kentucky, and West Point, New York. Most of the remainder is at the Denver and Philadelphia Mints and the San Francisco Assay Office. Totaling about 262 million troy ounces in 2005, the gold reserves of the United States officially are valued at about $11 billion. Valued at the approximate market price of gold, $400 per ounce, the U.S. Government's gold reserves are worth $105 billion, or $355 for each U.S. resident.

ecurity System

Storing almost $194 billion of gold makes extensive security measures mandatory at the New York Fed. An important measure is the background investigation required of all Bank employees. Continuous supervision by the vault control group also prevents problems from arising by ensuring that proper security procedures are followed.

The Bank and its vaults are secured by Federal law enforcement officers. Periodically, each officer must qualify with semi-automatic weapons on the Bank's firing range. Although the minimum requirement is a marksman's score, most qualify as experts. In addition, the Bank's guards must be proficient with other weapons.

The gold also is secured by the vault's design, which is a masterpiece of protective engineering. The vault is actually the bottom floor of a three-story bunker of vaults arranged like strongboxes stacked on top of one another. The massive walls surrounding the vault are made of steel-reinforced structural concrete.

There are no doors into the gold vault. Entry is through a narrow ten-foot passageway , nine-feet-tall, 90- tone steel cylinder that revolves vertically in a 140-ton, steel-and-concrete frame. The vault is opened and closed by rotating the cylinder 90 degrees. Besides, the security includes a closed-circuit television monitors and an alarm system that allows to close all security areas and Bank exits in a few seconds.

An airtight and watertight seal is achieved by lowering the slightly tapered cylinder three-eights of an inch into the frame, which is similar to pushing a cork down into a bottle. The cylinder is secured in place when two levers insert large bolts, four recessed in each side of the frame, into the cylinder. By unlocking a series of time and combination locks, Bank personeel can open the vault the next business day. The locks are under "multiple control" (no one individual has all the combinations necessary to open the vault).

The weight of the gold (just over 27 pounds per bar) makes it difficult to lift or carry and obviates the need to search vault employees and visitors before they leave the vault. Nor do they have to be checked for specks of gold. Gold is relatively soft, but not so soft that particles will stick to clothing or shoes, or can be scraped from the bars. The Bank's security arrangements are so trusted by depositors that few have ever asked to examine their gold. Finally, the vault has never been robbed.

ources

* [http://www.newyorkfed.org The Key to the Gold Vault. The Federal Reserve Bank of New York. 2005] Retrieved September 30, 2007.